Bank of Korea: "Financial Market Stable... Terminating Unlimited RP Purchase" [Kang Jin-kyu's BOK Watch]

The Bank of Korea has decided to end its unlimited purchase of repurchase agreements (RP), a liquidity supply mechanism implemented following the declaration of martial law in December last year. Considering the overall stable trend in the financial market, they decided to normalize RP trading regulations.

On the 26th, the BOK announced that it would terminate the 'Temporary Expansion of RP Trading Counterparties and Eligible Securities' on the 28th. This measure was decided at an emergency Monetary Policy Committee meeting right after President Yoon Suk-yeol declared martial law on December 4th last year.

RP purchase is a liquidity supply tool where the BOK buys bonds from financial institutions under repurchase conditions. The purchase targets include government bonds, government-guaranteed bonds, and other securities determined by the Monetary Policy Committee.

At the time, concerned about high short-term market volatility, the BOK expanded the scope of eligible RPs to include industrial finance bonds, SME finance bonds, export-import finance bonds, special bonds issued by nine public institutions, agricultural finance bonds, fisheries finance bonds, and bank debentures under the Banking Act. The eligible institutions were expanded to include all domestic banks, foreign bank branches, securities companies, and futures companies.

A BOK official stated, "The financial market has shown stability since martial law," adding, "We decided not to extend the unlimited supply as key indicators like the overnight call rate have not deviated from target levels."

Since December last year, the BOK has supplied short-term liquidity through RP purchases worth 105.1 trillion won. This exceeds the total supply for the entire previous year (106.1 trillion won). The BOK explained, "Only 19.6 trillion won was supplied under market stabilization measures, while the rest was through normal liquidity supply procedures."

While ending unlimited RP purchases, the BOK left open the possibility of resuming the measure if market instability emerges. A BOK official said, "If deemed necessary due to spreading market anxiety, we will continue active market stabilization efforts through RP purchases and outright purchases of treasury bonds."

Reporter Kang Jin-kyu josep@hankyung.com